ChexSystems
| Company type | Division |
|---|---|
| Industry | Financial services |
| Predecessor | Deluxe Corporation (original owner) |
| Founded | 1991 |
| Headquarters | United States |
Area served | United States |
| Products | Check verification, consumer reporting, identity verification, account history reporting, transaction surveillance |
| Parent | Fidelity National Information Services |
ChexSystems operates as a U.S.-based check verification service and consumer reporting agency, functioning under the eFunds division of Fidelity National Information Services. Its primary role involves compiling information regarding consumers' management of deposit accounts.
History
Originally owned by Deluxe Corporation in 1991, ChexSystems became part of the eFunds spin-off in 1999. Later, in 2007, Fidelity National Information Services acquired eFunds. At that point, ChexSystems was providing services to approximately 59,000 bank and thrift branches.
Services
Approximately 80 percent of commercial banks and credit unions across the United States utilize ChexSystems to evaluate applicants for checking and savings accounts. According to eFunds, their services extend to over 9,000 banking institutions and upwards of 100,000 branches nationwide. By 1991, ChexSystems had records on 7.3 million individuals whose accounts were terminated "for cause." Their offerings encompass identity verification, detailed account history reporting, and transaction surveillance.
Reporting
ChexSystems compiles reports based on data submitted by financial institutions covering the previous five years. These reports identify banking issues such as check overdrafts, outstanding balances, depositing fraudulent checks, or unusual account activities. Financial institutions may refuse new deposit accounts to consumers flagged with negative entries. Since 1999, ChexSystems has been recognized as a consumer reporting agency under the Fair Credit Reporting Act, granting consumers the right to one complimentary annual report and the ability to challenge incorrect data.
Criticism
Distinct from conventional Credit bureaus that include both positive and negative credit information, ChexSystems exclusively reports adverse details related to deposit account behavior. This practice can result in customers exhibiting similar banking mistakes being denied new accounts regardless of one having an otherwise positive banking record. A survey conducted in 1991 revealed that two-thirds of California’s largest banks rejected customers listed by ChexSystems. The Greenlining Institute pointed out inconsistencies in how banks determine which negative incidents to report.
Response from banks
Beginning in August 2000, the Greenlining Institute collaborated with the Federal Reserve Bank of San Francisco to hold discussions aimed at reforming the application of ChexSystems data. Recommended best practices for financial institutions included:
- Educating staff to apply discretion when evaluating risks
- Establishing minimum thresholds before initiating ChexSystems screening
- Permitting exceptions for denials caused by factors beyond customers’ control, such as extended illness
Following these meetings, participating banks pledged to enhance their use of ChexSystems data. In September 2000, Bank of America took a leadership role by announcing several policy revisions:
- Excluding records older than three years unless related to fraud
- Ignoring entries over one year old if associated debts have been paid
- Waiving certain entries when debts are settled and financial responsibility courses completed
- Increasing the loss threshold for reporting overdrafts from $50 to $100
- Allowing longer repayment periods for negative balances
By December 2000, Bank of America noted approximately 1,800 new account openings attributed to these updated policies. Additional recommended practices designed to reduce obstacles for low- and moderate-income clients include:
- Raising the minimum negative balance threshold for reporting from $25 to $100
- Extending repayment deadlines from 30 days to 90 days
- Improving overdraft notifications with clearer information about reporting implications
- Postponing reports until multiple contact attempts have been made and opportunities for resolution provided
Certain banks utilizing ChexSystems also rely on Early Warning Services, LLC—a fraud prevention and consumer reporting company jointly owned by Bank of America, Truist, JPMorgan Chase, and Wells Fargo. Early Warning Services is a fintech enterprise serving leading U.S. banking institutions.